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8-K - FORM 8-K - Archipelago Learning, Inc. | d73760e8vk.htm |
EX-99.2 - EX-99.2 - Archipelago Learning, Inc. | d73760exv99w2.htm |
Exhibit 99.1
Archipelago Learning Acquires Educationcity Ltd
Acquisition expands Archipelago Learning into core classroom and individualized instruction
and provides entry into global education market
and provides entry into global education market
DALLAS, Texas June 10, 2010 Archipelago Learning, Inc. (NASDAQ: ARCL), a leading
subscription-based online education company whose core product, Study Island, provides
standards-based instruction, practice, assessments and productivity tools to improve the
performance of educators and students, today announced that it has acquired privately-held UK based
Educationcity Ltd, a leading developer and publisher of EducationCity.com, an online K-12
educational content and assessment program, for approximately $87 million in cash and Archipelago
Learnings common stock. The transaction was approved by Archipelago Learnings Board of Directors
and closed on June 9, 2010.
Exclusively delivered online, EducationCity is a classroom, computer lab and homework resource,
harnessing interactivity, animation and humor to provide basic instruction in reading, math and
science to children between 3 and 12 years old. The program also incorporates powerful teacher
features to support lesson delivery. Like Study Island, EducationCity can be accessed via any web
browser anytime, anywhere is highly engaging, is proven to improve students learning
performance, and is very affordable.
Tim McEwen, Archipelago Learnings chief executive officer, stated, We are delighted to be
acquiring a company with highly complementary products that fit perfectly with our strategy of
delivering high-impact low cost content-rich online tools to improve student learning. Similar to
Study Island, EducationCity maps to standards, combines rigorous content and interactive
animations, fun games, and motivational rewards to drive academic success in a fun and engagement
manner. Unlike Study Island, EducationCity core classroom and individualized instruction is geared
toward the initial teaching phases of academic content. EducationCity helps students learn basic
skills and concepts while Study Island helps assess, reinforce and master this knowledge. When
used in conjunction with one another, EducationCity and Study Island provide a powerful
comprehensive teaching and reinforcement solution to maximizing student learning and teacher
performance.
McEwen continued, EducationCitys strong penetration in the UK with 8,200 current schools and its
ability to expand to other English speaking countries provides the start of a global platform for
Archipelago Learning to begin exploring international expansion opportunities. In the US,
EducationCity has grown to over 4,800 schools in less than three years and has the opportunity for
significant growth as we seek to expand the number of schools and sell new products to existing
schools. By combining EducationCity products with Study Islands, we will have two of the leading
K-12 online education products in the US market; thereby strengthening our product offering and
bolstering our positioning within our core K-12 online education market.
Headquartered in Rutland, UK, with a US office in Naperville, IL, EducationCity employs
approximately 105 professional staff serving K-12 customers located throughout the UK and US With
13,000 school customers today, EducationCity increases Archipelago Learnings penetration and
product offering product offering to the global K-12 market. Moreover, the increased scale from
combined operations provides the potential for both
businesses to realize longer-term incremental revenue growth and infrastructure cost benefits.
Matt Drakard and Simon Booley, co-founders of EducationCity, stated, We are very excited to be
joining forces with Archipelago Learning. The combination of EducationCitys core academic content
and learning activities with Study Island makes for a compelling, comprehensive instructional
program for pre-school through middle school teachers and students. EducationCity and Study Island
work in tandem to introduce, extend, enrich, remediate, and reinforce the learning process through
proven, research-based content that ensures that every learner can be successful in mastering the
most rigorous standards of learning.
Continuing, Drakard and Booley commented, Most importantly, we believe that EducationCity and
Study Island represent the future of K-12 curriculum content and assessment across the globe.
Everything we do is, and will be, inspired by our shared mission to delight children globally with
the opportunity of learning, to engage and inspire children in their personal development, and to
enable teachers and parents to nurture future generations, and create value for shareholders.
EducationCity is planned to be a stand-alone business unit of Archipelago Learning. Its
headquarters will remain in Rutland, UK and Naperville, IL. Company founders Matthew Drakard and
Simon Booley will continue to lead EducationCity and report to Archipelago Learnings CEO, Tim
McEwen.
Additional information on EducationCity
| EducationCity was founded in 1999 by Matthew Drakard and Simon Booley | ||
| Serves pre-k to 6th grade students with core products that build math, language arts and science skills | ||
| In an independent survey of Study Island customers, EducationCity was recognized as the next most valuable K-12 online product in the US after Study Island (Market Measurement Survey; November 2009) | ||
| Serves 13,000 schools in the US (4,800) and UK (8,200) | ||
| Subscriptions are for a whole school or district site license | ||
| Pricing is $325 per subject, per grade level for an individual school. | ||
| Offers a Homework Module, which enables students to access product outside of school, which costs $4 extra per student | ||
| Offers a home version of the product directly to consumers, which costs $59 per year for a grade level suite of reading, math and science products |
Key Elements of the Transaction
Archipelago Learning purchased EducationCity for a total consideration of $87 million, including $5
million of deferred cash consideration to be paid $2.5 million on each of December 31, 2010 and
December 31, 2011. The $82 million upfront consideration consists of 1,242,408 shares of newly
issued Archipelago Learning common stock (valued at $17 million based on our closing share price on
June 9, 2010) and $65 million of cash. The shares were issued pursuant to an exemption from
registration and are subject to
restrictions on transfer under securities laws and a contractual lock-up agreement. In connection
with the transaction, the sellers were also granted registration rights with respect to the shares
received in the transaction. The upfront cash consideration was financed using approximately $40
million of Archipelago Learnings cash reserves plus $25 million of incremental debt. The Companys
credit agreement was amended to include an additional term loan of $15 million, an additional
revolving loan of $10 million and an additional uncommitted term loan of $25 million.
Updated Outlook
Management currently expects the EducationCity acquisition to add approximately $8.5 million to
$9.5 million in invoiced sales and $2.0 million to $3.0 million in adjusted EBITDA in fiscal 2010.
At the midpoint of these ranges, the acquisition is expected to be accretive to free cash flow per
diluted share by approximately $0.09 in fiscal 2010 and by approximately $0.16 in fiscal 2011. The
transaction is expected to be dilutive by approximately $0.06 to fiscal 2010 diluted EPS and
approximately $0.04 to fiscal 2011 due to EducationCitys high growth profile and the associated
lag in GAAP recognized revenue.
Today, management is also reconfirming Archipelago Learnings core business full-year free cash
flow guidance but revising the companys full-year GAAP revenue and EPS guidance. While comfortable
with the current second quarter 2010 consensus GAAP revenue and EPS estimates, management believes
its prudent to adopt a more conservative outlook for the second half of the year based on recent
order and renewal trends. Since our May 11th first quarter earnings conference call, we have seen
an increasing trend of schools delaying renewals and new purchases. Given the timing lag between
invoiced sales and GAAP revenue, this trend is expected to impact GAAP revenue recognition in the
second half of this year. Accordingly, management currently expects the following for the year
ending December 31, 2010:
| Revenue of $52 to $56 million | ||
| Adjusted diluted EPS1 of $0.40 to $0.44 | ||
| Diluted EPS of $0.36 to $0.40 | ||
| Cash flow from operations of $23 to $25 million (unchanged) | ||
| Capital expenditures of approximately $2 million (unchanged) | ||
| Total schools of 24,000 to 25,000 (unchanged) |
On a combined basis and as of June 9, 2010, Archipelago Learning currently expects the following
for the fiscal year ending December 31, 2010:
| Revenue2 of $58 to $62 million | ||
| Adjusted diluted EPS1 of $0.34 to $0.38 | ||
| Diluted EPS2 of $0.30 to $0.34 | ||
| Cash flow from operations of $27 to $29 million | ||
| Capital expenditures of approximately $3 million | ||
| Total schools of 35,000 to 38,0003 |
(1) | Adjusted diluted EPS excludes stock compensation expense, the gain/loss on our interest rate swap, any non-cash deferred revenue write-down resulting from the EducationCity acquisition and non-recurring items. | |
(2) | Revenue and diluted EPS shown before any write-down to EducationCitys deferred revenue that may result from purchase adjustments at close. | |
(3) | Assumes 20-25% overlap of Study Island and EducationCity Schools in the US. |
Conference Call Information
Archipelago Learning will host a conference call to discuss the acquisition of EducationCity at
8:00 a.m. Eastern Daylight Time today, June 10, 2010. A PowerPoint presentation that corresponds to
the conference call can be found on the Investor Relations section of the companys website at
http://www.archipelagolearning.com. Investors and analysts interested in participating in the call
are invited to dial (877) 407-0784 (US toll-free) or (201) 689-8560 (international toll)
approximately ten minutes prior to the start of the call. A replay of this call will be available
starting around 11:00 a.m. Eastern Daylight Time June 10, 2010 and will remain active through June
24, 2010. The replay can be accessed by dialing (877) 660-6853 (US toll-free) or (201) 612-7415 and
entering account number 3055 and conference code 352123.
A live webcast of the conference call as well as a copy of this press release and a PowerPoint
Summary that will be presented during the conference call is available at the Investor Relations
section of the Companys website at http://www.archipelagolearning.com. Please visit the website at
least 15 minutes prior to the call to register for the webcast and download any necessary software.
A replay of the webcast will be archived on the Companys website.
About Archipelago Learning
Archipelago Learning is a leading subscription-based online education company that provides
standards-based instruction, practice, assessments and productivity tools that improve the
performance of educators and students via proprietary web-based platforms. Study Island, the core
product line, helps students in kindergarten through 12th grade master grade-level academic
standards in a fun and engaging manner. Study Island products are utilized by over 10 million
students in approximately 21,800 schools in all 50 states, Washington D.C. and Canada. For more
information, please visit www.archipelagolearning.com. Archipelago Learning is
headquartered in Dallas, Texas.
About EducationCity
EducationCity is a leading developer and publisher of educational content with offices in
Naperville, USA and Rutland, UK. The company employs over 100 people comprising talented artists,
programmers, producers, trainers and school support teams, and has a large network of specialized
education advisors (Educationalists) spanning both continents. The company continues to invest in
both its online services and delivery capabilities. This includes providing additional features
and functionality, new products and expanding server capacity in secure, enterprise level London
and Dallas data centers to ensure customers continue to enjoy a high level of service. For more
information, please visit www.educationcity.com.
Company Contacts
Investors:
|
Media: | |
John Rouleau
|
Leslie Eicher, APR | |
Integrated Corporate Relations
|
Eicher Communications Inc. | |
203-682-8342
|
314-965-1776 | |
John.Rouleau@icrinc.com
|
Leslie@EicherCommunications.com |
Forward Looking Statements
This release and the related conference call contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities
Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995. All
statements regarding the acquisition of EducationCity and revised outlook as well as any statements
other than statements of historical fact are considered forward-looking statements and reflect
current expectations and projections relating to our financial condition, results of operations,
plans, objectives, future performance and business. The words guidance, anticipate, estimate,
expect, project, forecast, plan, intend, believe, may, should, likely, future,
and other words and terms of similar meaning are used to identify forward-looking statements.
These forward-looking statements are based on assumptions that we have made in light of our
industry experience and on our perceptions of historical trends, current conditions, expected
future developments and other factors we believe are appropriate under the circumstances. These
statements are not guarantees of performance or results. They are subject to risks and
uncertainties (some of which are beyond our control), which could cause actual results to vary
materially from the forward-looking statements contained in this release. Although we believe that
these forward-looking statements are based on reasonable assumptions, many factors could cause
actual results to vary materially from those anticipated in such forward-looking statements.
Certain of these risk factors are discussed in the Companys filings with the Securities and
Exchange Commission and include, but are not limited to (i) risks associated with the acquisition
of EducationCity, including our ability to successfully integrate EducationCity, our ability to
retain customers and employees, the risk that the expected revenue or business benefits will not
materialize, the potential for undisclosed or unanticipated liabilities, the sufficiency of the
holdback to cover any claims, risks associated with the increase in our indebtedness and the
decrease in our cash balances and the potential for future impairment charges or other accounting
adjustments related to the acquisition, (ii) our customers reliance on, and the availability of,
state, local and federal funding; (iii) competitive factors, including large publishers
aggressively entering our markets and new competitors more easily entering our markets if national
educational standards are adopted; (iv) legislation and regulation, including changes in or the
repeal of legislation that mandates state educational standards and annual assessments; (v)
difficulty in evaluating our current and future business prospects because of our recent rapid
growth; (vi) web-based education failing to achieve widespread acceptance by students, parents,
teachers, schools and other institutions; (vii) lower customer renewal rates or a decrease in sales
for our Study Island products; (viii) decisions at district or state levels to use our competitors
products rather than ours, (ix) seasonal fluctuations, (x) system or network disruptions and
technology issues, (xi) delays in product development or product releases and the success of new
product introductions, (xii) acquisition related risks, (xiii) intellectual property related risks,
(xi) our ability to retain key employees, (xiv) risks related to our indebtedness, (xiv) legal
risks, and (xv) risks related to global and US economic conditions.
Any forward-looking statement speaks only as of the date on which it is made, and the Company
undertakes no obligation to update any forward-looking statements to reflect new information,
future developments or otherwise, except as may be required by law.